WHY WE NEED GST?
- Need for integrated one Indirect Tax Structure.
- Number of Taxes, Complexities, Compliances, Litigations are increasing day by day.
- Tax chain should start from origination and reach its destination (ultimate consumer) without break in the chain, i.e. Destination based tax.
- Both Goods & Service should share Tax Burden-fair and equitable tax system.
- Removing cascading effect of taxes- no tax on tax.
- One standard tax rate across the country with minimal exemptions and very few items of reduced rates.
- The law for taxation of Goods & Services is same across the country and procedures are also almost identical with may be, few, very special case exceptions with adequate documentation to explain the logic for the same.
- Widening of tax base.
- Minimizing Tax Gap.
- Self policing mechanism to minimize tax evasion.
- Technology is used to facilitate ease of compliance.
- Robust monitoring mechanism.
- Effective grievance redressal mechanism.
- The tax system should be is fair & equitable and should be build on sound economic principles.
PRESENT INDIRECT TAX STRUCTURE
LIST OF CONSTITUTION
E-84, L-I, S-VII
E-97, L-I, S-VII
Provision of Service
E-54, L-II, S-VII
Sales within State
E-92A, L-I, S-VII
E-83, L-I, S-VII
Import & Export
E-52, L-II, S-VII
Entry of Goods into Local Area
E-62, L-II, S-VII
- One CGST law will be applicable all over India.
- Separate SGST law for every State with common provisions for various essential items.
- Dual structure : Concurrent powers to Union and State to levy and collect Goods and Service Tax.
- World-wide : Unified Structure
GST WILL COVER
- ‘Sale of goods’ / 'Provision of Service' concept replaced by ‘Supply of Goods or of services or both’.
- Stock Transfer / Goods sent for Job Work is also covered.
GST WILL NOT COVER
- Taxes on supply of alcoholic liquor for human consumption. State Excise will be payable on this.
- Tobacco & Tobacco Products / Petroleum & Petroleum Products - in addition Central Excise Duty will be levied.
- Immovable Property / Real Estate.
ADVANTAGES OF GST
- More efficient Tax System
- Neutral in its application
- Distributional attraction
- Lower Tax Rates over years
- Eliminating Classification dispute
- Elimination of multiple taxes
- Elimination of cascading effects
TAXES TO CONTINUE
- The taxes, levies and fees which are not related to supply of goods & services
- Basic Custom Duty on Imports
- VAT on certain goods - Petroleum, Alcoholic Liquor for human consumption
- Professional Tax
- Income Tax (being Direct Tax)
- Immovable Property- Stamp duty.
- Motor Vehicle Taxes
- Entertainment tax can be imposed only by Panchayat, Municipality or Regional Council or District Council - of course SGST will be imposed on entertainment
- Basic Customs duty to continue. IGST instead of present CVD and SAD.
PROPOSED SYSTEM : GST
- INTRA STATE SUPPLY : CGST - & SGST
- INTER STATE : IGST = CGST + SGST
- IMPORT FROM OUTSIDE INDIA : CUSTOM DUTY (CVD-SAD) & IGST.
- GST is principally consumption / destination based tax.
- Tax will be payable in the State in which goods & services are consumed.
- No declaration.
- No Check Post.
- SGST will be kept same in all states. However, a price band may be given to States for SGST rates.
- CGST & IGST rates will be same all over India.
- IGST may be sum total of SGST & CGST,
i.e. IGST = SGST + CGST.
VAT PRINCIPLE IN GST
- GST will be on basis of Value Added Tax (Vat) concept
- Vat to avoid cascading effect of taxes
- ITC (Set Off) of CGST for CGST and IGST but not for SGST
- ITC (Set Off) of SGST for SGST and IGST but not for CGST
- ITC (Set off) of IGST for IGST, CGST and SGST in that order
- Credit on basis of Returns like 26AS
RATES IN GST
- Non Taxable- Exempted.
- Merit Rate - Precious Metal (to be decided…. 4% ?).
- Low Rate - Essential (Common Use) Goods (5%).
- 2 Standard Rates in GST (12% & 18%).
- Luxury / Demerit (Sin) Rates - For Tobacco & Tobacco Products, Petroleum Products, Pan Masala, Luxury Cars (28% + Additional Cess).
- Above rates are for Goods. For Services - only Standard Rate.
- Zero Rated Goods [S. 2(111)] : (Export & Sales to SEZ).
Taxable Event is supply of Goods and / or Services being payable by the Supplier at the time of Supply on a forward charge basis.
In certain notified matters, liability of GST will be on recipient of Goods / Services under a reverse charge mechanism.
There is TDS & TCS mechanism under specified circumstances.
Supply includes all forms of Goods / Services--
* such as Sales, Transfer, Barter, License, Exchange, Rental, Lease or disposal made or agreed to be made for a consideration by a person in the course of furtherance of business.
* Importation of service, where the same is not for a consideration and whether or not it is in the course or furtherance of business,
* Schedule-I to Schedule-IV describes what would be supply or supply of Goods / Service or would not be supply.
* Sale of under construction properties, temporary transfer of intellectual property rights, intangible property, works contracts, transfer of right to use any goods and development, up gradation, customization of software would be supply of service.
* Transactions between principal and agents are deemed to be supplies.
* Supply of goods to a Job Worker would not be covered.
ELECTRONIC ERA TO COMMENCE
- E - REGISTRATION
- E - PAYMENT
- E - RETURN
- Common Portal for all activities
- Common Portal for all Taxes (IGST - CGST - SGST)
- Common Registration
- Common Return
COMPOSITION SCHEME (S. 9) -
- Optional Composition up to Rs. 50 Lakhs of Taxable Turnover. Optional Threshold in both components.
- Rate of Composition may be at minimum 1%.
- Services out of Composition.
- No ITC. Input Tax to be included in Cost.
- Not to charge GST.
- Such dealers don’t have to apply every year to remain under this scheme.
Getting out of Composition Scheme -
- If turnover rises above the ‘Composition Turnover’, or
- If the dealer itself opts to get out of the Scheme.
Once a dealer is out of the Scheme, he will have to apply afresh in the beginning of the next FY, if he wishes so.
Registration of Composition Dealers -
- At the time of registration, such dealer should indicate so in the registration form.
- GST Common Portal would internally flag him as a Composition Dealer.
- Later on, when he goes out of the Composition Scheme due to his turnover crossing the Composition ceiling or he opts out of the scheme, the said flag will be removed and he would continue operating with the same registration number, without undertaking any fresh registration.
Advantages of Registration -
- Plays very important role in any tax statute
- Determines jurisdiction of a particular authority
- Unique Identification
- Link Transactions
- Proper Accounting of Input Taxes paid
- GST collection
- Legally recognized as supplier of Goods or Services.
- Proper accounting of taxes paid on the Input Goods or Services.
- Pass on the credit of the taxes paid on the Goods or Services supplied to purchasers or recipients.
- Without GST Registration, a Legal person can neither collect GST nor, claim any input tax credit of GST paid by him.
- Serene compliances : Tax - Returns - Assessment or any communication
THRESHOLD LIMIT [(Schedule-V]
- If Aggregate Turnover of a person in a F.Y. > Rs. 19 Lakhs (Rs. 9 Lakhs for North Eastern States) - Registration.
- If Aggregate Turnover of a person in a F.Y. > Rs. 20 Lakhs (Rs. 10 Lakhs for North Eastern States) - Tax Liability.
- PAN India basis.
- Paragraph 1 of S-V requires a person to get registration & provides that Every supplier shall be liable to be registered under this Act in the State from where he makes a taxable supply of goods and/or services, if his aggregate turnover in a FY > Rs. 20 Lakhs (10 for northern states).
- Provided that the supplier shall not be liable to registration, if his aggregate turnover consists of only goods and/or services, which are not liable to tax under this Act.
- Aggregate turnover is defined u/s. 2(6) as the aggregate value of all Taxable and Non-Taxable Supplies, Exempt Supplies and Exports of Goods and/or Services of a person having the same PAN, to be computed on all India basis and excludes taxes, if any, charged under the CGST Act, SGST Act and the IGST Act, as the case may be.
- Apply within 30 days if threshold of Gross Annual Supplies crossed but if a taxable person carries out any interstate supply, and/or, is liable to pay GST under reverse charge, there is a compulsion for registration.
- Common Registration Form.
- Both Registrations simultaneously & effective from the date of Application.
- Common GSTIN (PAN based).
- Separate GSTIN according to Business Vertical - as per Business Segments defined in Accounting Standard 17.
Unique Identification Numbers -
(Not making OS of GST Goods, but making interstate purchases)
Will have to obtain a Unique Identification No. from GST Portal.
Its structure = GSTIN Structure
Common for Center and States
Supplies made to them will be B2B Supplies.
Input Service Distributor (ISD)
Would be required to obtain GSTIN
(For distributing the credit of GST paid on supplies, proposed to be used at multiple locations which are separately registered)
Migration of existing taxpayers to GST (S. 166)
Existing Regd. Dealers - (In any tax being subsumed in GST)
- Every existing registered person shall be issued a provisional registration which shall be valid for 6 months.
- Would be allotted GST registration no. called GSTIN - On voluntary basis.
- Dealers below Threshold will have an option to remain in GST.
- On submission of prescribed information by each such registered person, they shall be issued permanent registration.
- Provisional registration may be cancelled, if a person fails to submit the prescribed information.
- If such person does not have PAN, will be initially provided a temporary registration, and later converted in to a PAN based registration.
Multiple Registrations -
- For each state, the taxable person takes a separate Registration.
- For various segments (as per AS 17), multiple registrations within one state is also permitted, subject to all the verticals being on the same scheme of tax treatment.
- ITC shall not be allowed across such verticals, unless Goods and Services are actually supplied.
- For the purpose of recovery of dues, all business verticals, though separately registered, will be considered as a single legal entity.
Casual Dealers -
If a supplier is not registered in any state and desires to continue business in a particular state for a limited period, he will have to obtain registration in that State for that limited period. Such suppliers are known as casual dealers.
- They shall not be allowed to opt for composition scheme.
- The supplier would be eligible to claim ITC on purchases / inward supplies.
- The period of registration would be mentioned in the registration certificate.
- Return for such taxpayers would be different from normal dealers.
- Such taxpayers would be required to self-assess their likely liability and deposit the same as an Advance Tax (Security deposit).
Non Resident Suppliers -
A person applying for registration in any state, already being registered in any other state is called Non Resident Supplier.
Already being registered in a state, would have an easy process to get registered in other state.
Structure of GSTIN -
Defined under the Indian Census 2011
No. of registration a legal entity has in that state (having the same PAN)
(1-9 and then A-Z, i.e., 35 Business verticals can be registered of same legal entity.
Kept blank for future use
Switching from Normal Scheme to Composition Scheme -
- Normal dealer can switch to Composition Scheme, if eligible, only from beginning of the financial year.
- Application needs to be filled before 31st March of previous year.
Switching from Composition Scheme to Normal Scheme -
- Composition Dealers will be allowed to switch to normal dealer, even during the year.
- Existing taxpayer under Composition Scheme will automatically be switched to Normal dealer, on crossing the Composition threshold.
- Time period for which the ITC is to be permitted (after this conversion) is still to be provided.
Obtaining Registration -
- Interaction with tax authorities through ‘GST Common Portal’.
- Application for registration without prior enrollment.
- After submitting online application, E-mail and SMS will be sent to authorized signatory, for confirmation.
- After such confirmation, Acknowledgement Number would be generated &sent to Authorized Signatory.
- Once the application is approved and GSTIN is generated, the same along with Log-in ID and temporary Password will be sent to the authorized signatory.
- This credential will be permanently used to access the GST Common Portal subsequently.
(Online verification of PAN would be mandatory before submission of Registration Application).
Cancellation / Surrender of Registration
a. Request by the Tax payer: At the time of closure of Business or GTO falling below threshold or Transfer of Business or Amalgamation or Demerger or Non commencement of business within stipulated period of time.
b. Cancellation by Tax Authorities: If signed copy of Summary of extract not received, even after a remainder or on contravention of any GST law or on Non filling of returns, the registration can be cancelled with prospective effect.
TAX INVOICE, CREDIT & DEBIT NOTES (S. 28-31)
There shall be separate invoice for taxable supplies, called as Tax Invoice. For non-taxable goods a bill shall be issued.
POINT OF TAXATION (TIME OF SUPPLY)
FOR GOODS :
1. Normal Supply of Goods - Earliest of removal of goods (in case of movable), made available to recipient (non movable), invoice raising, receipt of payment, accounting in books).
2. Continuous Supply of Goods - on successive payments / statement of account or invoice / payment.
3. Returnable / On Approval Basis - earliest of 6 months / date of confirmation of supply.
FOR SERVICE :
1. Normal Supply of Service
a. When Invoice raise within time - Earliest of invoice raising or receipt of payment.
b. Otherwise - earliest of completion of service, receipt of payment or accounting in books.
2. Continuous supply of services - When due date is ascertainable from contract, the due date else each time payment is received / invoice issued, in case payment is linked to completion of event.
REVERSE CHARGE :
Earliest of date of receipt of Goods / Service, Payment, Invoice, Accounting in books.
PLACE OF SUPPLY
FOR GOODS :
Place where the goods are delivered except in case of goods not involve movement, assembled / installed at site --- location of goods.
FOR SERVICES :
In case of a registered person - location of such registered person.
In case of a unregistered recipient - address of the recipient and if it is not available, the location of the supplier of services.
PAYMENT OF CHALLANS
Features of payment process under proposed GST regime
Tax payable as per return shall be paid on or before the last date for filing the return, i.e. on or before 20th of the next month in case of monthly return.
S. 44(8) of the Model GST Law provides that -
Every taxable person shall discharge his tax and other dues under this Act or the rules made there under in the following order :
(a) Self-assessed tax and other dues related to returns of previous tax periods;
(b) Self-assessed tax, and other dues related to return of current tax period;
(c) Any other amount payable under the Act or the rules made there under including the demand determined u/s. 66 or 67.
- Electronically Generated Challan from GSTN Common Portal
- No manually prepared Challan - Online Payment
- Anytime, anywhere mode of payment of tax.
- Tax collection data in electronic format
- Faster remittance of revenue to the Govt. Account
- Paperless Transactions
- Speedy accounting and reporting
- Electronic reconciliation of all receipts
- Simplified procedure for Banks
- Warehousing for Digital Challan
Proposed mode of Payments
Payment of Challan can be through Internet banking through authorized banks or Credit / Debit Card or Over the Counter payment (OTC) through authorized banks or Payment through NEFT/RTGS from any bank.
Payment by book adjustments would not be allowed.
Furnishing Details of Outward Supplies (S. 32)
Every RTP (Other than opting Composition Scheme) shall furnish, electronically, on or before the 10th day of the month succeeding the tax period in the prescribed manner and format ---
“Details of Outward Supplies” shall include details relating to zero-rated supplies, inter-state supplies, return of goods received in relation to / in pursuance of an inward supply, exports, debit notes, credit notes and supplementary tax invoices issued during the said tax period.
This detail of Outward supplies and Credit or Debit Notes, will be communicated to the persons receiving such supplies.
Upon discovery of any error or omission therein, said details shall be rectified in the tax period during which they are noticed, and in case there is a short payment of tax on account of such error or omission interest shall be paid at such rate as may be notified.
Last date of rectification would be--
- on or before filing of monthly return u/s. 34 for September of the next year (which is to be filed on or before 20th of Oct.), or
- The actual date of filing of relevant annual return (31st Dec.),
whichever is earlier.
But in case of any short payment of tax, tax and interest shall be payable with the rectification.
Furnishing Details of Inward Supplies (S. 33)
Every RTP (including Opting Composition Scheme) shall verify, validate, modify or, if required, delete the details relating to outward supplies and credit or debit notes communicated u/s. 31(1) to prepare the details of his inward supplies and his credit or debit notes and may include therein, the details of inward supplies and credit or debit notes received by him in respect of such supplies that have not been declared by the supplier u/s. 31(1).
Every RTP shall furnish, electronically, on or before the 15th day of the month succeeding the Tax Period---
- The details of inward supplies of taxable goods and/or services,
- Inward supplies of services on which the tax is payable on reverse charge basis,
- Inward supplies of goods and/or services taxable under the IGST Act, and
- Credit or Debit Notes received.
Last date of rectification would be--
- On or before filing of monthly return u/s. 34 for Sep. of the next year (which is to be filed on or before 20th of Oct.), or
- The actual date of filing of relevant annual return (31st Dec.),
whichever is earlier.
But in case of any short payment of tax, tax and interest shall be payable with the rectification.
Monthly Returns (S. 34)
Every registered taxable person shall, for every tax period, furnish a return, electronically, within 20 days after the end of such Tax Period of --
- Inward and outward supplies of goods and/or services,
- ITC availed,
- Tax payable, Tax paid, and
- Other particulars, as may be prescribed
- Person registered under Composition Scheme shall furnish returns for each quarter within 18 days.
- It is provided that a dealer shall not be allowed to furnish a return for a tax period, if a valid return for any previous tax period has not been furnished by him; and
- Also a return furnished without payment of full tax payable as per return shall not be treated as a valid return.
- Returns need to be furnished irrespective of the amount of Supplies (even if Nil).
- Person deducting Tax at Source shall furnish a return, electronically, for the month in which such deductions have been made, within ten days after the end of such month.
Revising of Returns
There is no provision for revising return. However, it can be rectified later on subject to payment of Interest and conditions prescribed.
Claim of ITC & provisional acceptance thereof
- ITC will be claimed in the return.
- New Registration - applied within 30 days - on Stock also.
- The ITC shall be available on provisional basis (for 2 months),
- It will be confirmed after payment of tax and filing of return by the supplier.
- If the supplier has not made the payment of tax, the ITC availed by purchaser will be liable for reversal with interest.
- ITC, as per the returns will be provisionally allowed.
- After filling of returns, ITC claimed by a taxable person, credited to his input tax credit ledger will be checked for duplication error, and is matched with, corresponding outward supply and/or debit note declared by the supplier in his valid return for the same or any previous tax period.
- ITC in case of Goods imported, shall be matched with the additional duty of customs paid.
- If both of these are matched, ITC will be deemed to have been finally accepted.
- Input simultaneously used for taxable & non-taxable
ITC restricted to Taxable & Zero Rated Supplies.
No ITC in case of non-business use of any goods
ANNUAL RETURN [S. 39]
Every registered taxable person, other than a casual or non-resident taxable person, shall furnish an annual return for every financial year electronically, on or before the 31st day of December following the end of such FY.
Every taxable person who is required to get his accounts audited shall furnish, electronically, the annual return along with -
- The audited copy of the annual accounts.
- A reconciliation statement, reconciling the value of supplies declared in the returns furnished for the year with the audited annual financial statement, and
- Such other particulars as may be prescribed.
MAINTENANCE OF RECORD
Every registered person shall be required to keep and maintain records of production, inward and outward supplies, stock, input tax credit availed, and tax payable and paid. At least for 60 months.
- Audit of all Returns compulsorily
- Around 70% State - 30% Centre
ASSESMENT AND APPEAL
- All processes by same channel - CGST or SGST
- Adjudication of same case will not be by dual authority
- The process will be generated / flow by Audit.
REFUND OF UNADJUSTED ITC : S. 38(2)
S. 48(2) provides that no refund of unutilized ITC shall be allowed in cases other than exports or in cases where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on outputs. It means if the input is taxable, but if output is non-taxable, there shall be no refund of ITC.
Even in case of export, no refund of unutilized ITC shall be allowed where the goods exported are subjected to export duty.
In case of refund on account of export, 80% of the refund claimed (excluding the amount of ITC provisionally accepted), shall be sanctioned on provisional basis, and the remaining 20% may be refunded after due verification of documents furnished by the applicant.
No refund, if the amount of refund is less than Rs. 100/-.
Refund may arise on account of
- Excess payment of tax due to mistake or inadvertence,
- Export of goods / services,
- Finalization of Provisional Assessment,
- Refund of Pre - deposit for filing appeal,
- Payment of duty / tax during investigation but no/ less liability arises at the time of finalization of investigation / adjudication,
- Refund of tax payment on purchases made by Embassies or UN bodies,
- Tax credit on inputs used for Manufacturing /Generation /Production /Creation of Tax Free Supplies or Non-GST supplies,
- Refund of Carry forward Input Tax Credit,
- Tax Refund for International Tourists.
- No concept of Declared Goods of special importance,
- Harmonized System of Nomenclature (HSN) Codes for classification of Goods & SAC Codes for Services,
- Credit for every purchase of goods / service,
- No concept of URD Purchase / Purchase Tax,
- Refund Cases (except Exports) will reduce substantially,
- It will increase tendency to purchase from RD. Even Stationery, Water or small purchases will be eligible for ITC,
- Imports liable to IGST,
- Exports will be zero rated,
- GST will help minimize Tax Gap,
- Self Assessment,
- Accounting will be very Important.
MATTERS TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION
MATTERS TO BE TREATED AS SUPPLY OF GOODS OR SERVICES
ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES
ACTIVITIES OR TRANSACTIONS UNDERTAKEN BY THE CENTRAL GOVERNMENT, A STATE GOVERNMENT OR ANY LOCAL AUTHORITY WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES
PERSONS LIABLE TO BE REGISTERED
RECOMMENDATIONS OF CEA
- Bringing alcohol and real estate within the scope of the GST would further the government’s objectives of improving governance and reducing black money generation.
- Bringing electricity and petroleum within the scope of the GST could make Indian manufacturing more competitive; and
- eliminating the exemptions on health and education would make tax policy more consistent with social policy objectives.
- Tax Base should be widened. For this, there should be mechanism that there will be no assessment, audit, survey, search of Registered Person. Instead attempt should be made to find new taxpayers.
- Advance receipt is also considered in Time of Supply. If GST is payable on advance receipt, then it will be difficult to reconcile the same in returns.
- If Output is tax free, there will be no ITC on Inputs. This will increase cost of tax free goods and in turn inflation.
- GST Rates should not be frequently changed, i.e. there should be clear verdict in the Act / Rules that GST Rates will be unchanged for certain period, say 3 years.
- Bill Wise details of Purchases and Sales should not be asked in Returns. Instead Dealer wise summary will suffice.
- English Version of Acts & Rules should prevail.
- There should be illustration / example below each Section.
- Detailed / Exhaustive FAQ covering all aspects of GST.
- Nomenclature of various commodities : Besides HSN Codes, common parlance name of commodities should be given.
- Entry Tax (subsumed) should not be levied by the local bodies.
- Entertainment Tax (subsumed) should not be levied by the local bodies.
- All State Govts. should continue existing VAT / Entry Exemptions.